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Insolvency and Corporate Bankruptcy In China

Insolvency and Corporate Bankruptcy In China

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Home > Business > Bankruptcy and Corporate Bankruptcy In China

Insolvency and Corporate Bankruptcy In China

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Posted: 1 December 2006 | Comments: 0
| Views: 173 |

Insolvency

China's insolvency regime is still under construction. Bankruptcy remains a particularly sensitive issue in China because there are many technically insolvent state enterprises and financial institutions, forcing China between economic inefficiencies and redundancies that affect the social stability might choose.

Opening of insolvency proceedings Action

Both voluntary and involuntary actions are available (initiated by the debtor or a creditor, respectively). A bankruptcy action begins with an application in the People's Court for a declaration of insolvency, the applicant must prove that the debtor repay his debts as they will be due. A declaration of bankruptcy will stay all other proceedings against the debtor company, but generally requires the company to cease its business activities.

Notification

The people's court shall notify the creditor of the insolvency proceedings in writing or public notice. Creditor in writing of their rights within 30 days from the date of receipt, and creditors who have not received written entitled three months after the public announcement to make their rights. Missing this deadline expires claims of creditors.

Real Estate

All property, either by the company at the date of declaration of insolvency owned or acquired thereafter recovered appealed for distribution to creditors available, including intellectual property, real estate, investments and property from a transaction. This property is normally liquidated by auction.

Voidable transactions

Certain actions of an SOE are ineffective if they at any time (or committed by an FIE within 180 days before the date of liquidation) of six months prior to the adoption of the bankruptcy court at the time of the bankruptcy declaration must:

* Sale of Property to well below market value
* Concealment, secret distributions or gifts of property
* From claims as creditors Surrender
* The provision of security for previously unsecured debt
* Repayment of debt prior to maturity

Distribution Priority

Complaints must be paid for in the rule in the following order (though in some countries ranked higher pay claims secured creditors):

1. Secured creditors
2. Bankruptcy expenses
3. Employee wages and unpaid benefits
4. Outstanding taxes
5. Unsecured creditors

Corporate Bankruptcy Law

China has recently adopted a new corporate bankruptcy law of the provisional insolvency law, which replace existing since 1986, marking a major advance in corporate history bankruptcy system. The law takes effect on 1 June 2007 go. This law, the bankruptcy issues financial organizations, balances the rights and interests of creditors and guarantee work, and defines the order in bankruptcy liquidation company. China's New Corporate Bankruptcy Law is needed for some difficult times, as has the development of Chinese market economy has naturally led to an increasing bankruptcies, particularly in the public sector.

The law applies to all companies including state-owned enterprises, private domestic-funded enterprises and foreign invested enterprises. Perhaps his most praiseworthy to enable feature is a system reorganization weak companies to avoid bankruptcy. It's also wonderful with cross-border insolvency issues, and sets specific procedures for dealing with debt problems. It provides meaningful protection for mortgage borrowers guarantees, etc. and provides primarily mortgage holders, etc. on staff creditors such as unpaid staff, etc. (unfortunately, state enterprises not covered by this rule before the end of 2008 at the earliest). Finally, it arranges for professionalized management of the settlement (rather than management by unpaid local government officials who often Bungle winding up).

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David Carnes –
About the author:

David Carnes is licensed to practice law in California. He speaks and reads Mandarin Chinese and has several years experience with Chinese law firms and Sino-American joint ventures work. His website is called China Breezes .

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David Carnes is licensed to practice law in California. He speaks and reads Mandarin Chinese and has several years experience with Chinese law firms and Sino-American joint ventures work. His website is called China Breezes .

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